Wednesday, 6 June 2012

Australian Dollar Up As Economy Races In 1Q

The Australian dollar climbed sharply Wednesday as
Australia boasted the strongest economic growth in the developed world
in the first quarter.

Expectations that the world's major central banks are moving steadily
toward some form of coordinated stimulus for the global economy also
gave the Aussie dollar a boost.

Traders said that such was the strength of the economy in the first
quarter that it argued firmly in support of the RBA remaining sidelined
in coming months, especially after successive interest rate cuts in May
and June, economists said.

Strong mining investment and consumer spending resulted in a 1.3%
rise in gross domestic product in the first quarter from the previous
three-month period, data released Wednesday by the Australian Bureau of
Statistics showed.

Annual gross domestic product growth in the 1.4 trillion Australian
dollar (US$1.38 trillion) economy was 4.3%, the fastest pace in over
four years.

"The high Australian dollar has been a part this story, as it has
pushed down consumer goods prices, allowing households to buy greater
volumes. Indicators of inflation in the national accounts are generally
quite low," said Paul Bloxham, chief economist at HSBC, Australia.

At 0645 GMT, the Australian dollar was at US$0.9837 from US$0.9791 late Tuesday, and at Y77.59 from Y76.78.

Ahead of the GDP report, the Australian dollar was already rising on
an article in the Wall Street Journal suggesting the U.S. Federal
Reserve is ready to consider further stimulus for the world's largest
economy.

The column by Fed watcher Jon Hilsenrath said given weak U.S. data,
market strains and the deepening euro crisis, the Fed could indicate to
markets its willingness to act.

Looking ahead, Australian markets will focus on May employment data
on Thursday. Any hint of strength in employment growth will add to the
view that the RBA has done enough to cushion the economy against
possible shocks from overseas.

But a collapse in confidence in Greece is likely to extinguish the flame of growth in Australia, economists said.

"With global uncertainties weighing on confidence, national income
crimped by a falling terms of trade, the housing sector in poor
condition, with house prices continuing to contract modestly, and jobs
growth likely to falter, this burst of consumer spending is unlikely to
be sustained," said Huw McKay, senior economist at WestpacWBC.AU-1.17%
.

"Accordingly, the recent rate cuts are fully justified and the
need to go even further remains. The test now will be how forward
looking the authorities are prepared to be in the face of this spending
burst," Mr McKay said.